Wild East, a Russia! Magazine blog, Picks Top 5 Business Scandals of 2012

Wild East, a Russia! Magazine blog, Picks Top 5 Business Scandals of 2012
PR Newswire
NEW YORK, Feb. 1, 2013
NEW YORK, Feb. 1, 2013 /PRNewswire/ -- According to Wild East Blog, 2012 was a
busy year for lawyers, investigative reporters and corporate social
responsibility activists in Russia as a number of high-profile corporate
scandals and conflicts erupted, or continued to smolder, across the nation.
This escalation in corporate battles is best explained by lack of quality
assets still up for grabs after privatizations and property redistributions of
the 1990s and early 2000s. Ongoing effects of the 2008 credit crunch and more
recent economic disruptions in Europe and elsewhere have made credit scarce,
forcing Russian entrepreneurs, who have their heart set on juicy morsels in
other businessmen's hands to resort to somewhat unconventional means of
corporate action.
Russia! magazine experts voted the more than a decade-long litigation between
Russian tycoons Berezovsky and Abramovich over Russian resource assets as the
top scandal as "the longest and most expensive [US$ 5.5 bln] saga" of them
all. It finally came to end in 2012, after a British charge deemed Berezovsky
an "inherently unreliable witness," awarding the case to Abramovich.
Asset redistribution also continued in Russia's base, precious metals and
steel sectors. In repercussions after a multibillion-dollar scandal between
two Russian mining magnates Mikhail Prokhorov and Vladimir Potanin, control
over Norilsk Nickel, a global nickel, copper and palladium major, shifted away
from Potanin to an Oleg Deripaska-led consortium. Prokhorov had good reason to
congratulate himself on washing his hands of the asset two years earlier, in
2010, when he walked away with approximately US$ 10 bln in cash after an asset
split with Potanin, who stayed on, to fight, and lose, another day.
Russian steel baron Vladimir Lisin's fight against a smaller steel magnate
Nikolay Maximov over misstated asset price in a four year-old deal was taken
to a new level in 2012, as Maximov obtained "an injunction against Lisin's
assets in France," after essentially losing the legal war in Russia.
Several scandals have smaller scale (in the hundreds of millions of dollars,
rather than billions), but they stand out by viciousness of attacks and
variety of methods use to undermine an opponent and take control of a coveted
asset. The fight for major ammonia and fertilizer producer Tolyattiazot (ToAZ)
based in the Volga industrial city of Tolyatti has gone to extremes,
jeopardizing the livelihood of city residents and threatening the normal
operation of basic city services. The man behind the attempts to prevent ToAZ
from reinvestment in expansion and maintenance of its assets and from
financing socially-responsible projects on which many in the city depend
appears to be Dmitry Mazepin, desperate to uphold the chemicals and
fertilizers empire he started building in 2008 out of stakes in fertilizers
producers. He has a strong motive, as he needs all the cash he can get from
his assets to service the debt he took out to finance the acquisitions. This
could explain his outraged statements about any expenditures restricting the
cash flow to shareholders in ToAZ and Voskresensk Fertilizers, his other
acquisition. He could also be the instigator of numerous environmental and
other audits, as well as a media campaign accusing the current management and
core shareholder of ToAZ of wasteful practices and environmental and other
violations, in a thinly-veiled attempt to make the company cheaper. If
successful, he would be able to increase his stake to majority and take
control over the company's operations and cash flows. These attempts, if
successful, could "starve the company of reinvestment" and force it to "scrap
its social programs," Russia! Magazine reports. Voskresensk Fertilizers,
controlled by Mazepin, serves as a demonstration of what these efforts are
likely to bring: that company "is beginning to show the poor condition of
assets and is in arrears on payroll," according to the magazine.
Former Moscow Mayor Yuri Luzhkov's wife Elena Baturina won a complete,
crushing victory in 2012 over her brother Viktor Baturin, not only stripping
him of his share in Inteco, a real estate and construction conglomerate, but
also landing him in jail for alleged fraud.
"The total value of the top five business scandals is approaching an estimated
US$ 17 bln, but they make an even bigger impact on society as they undermine
the trust in free enterprise, the rule of law and the government among the
populace – not Russia's strong suits to begin with," says Michael Thompson,
editor of Wild East Blog.
Michael Thompson
m.thompson@readrussia.com
917 475 6452
wildeast.readrussia.com
SOURCE Wild East
Website: http://wildeast.readrussia.com